Some of GrainCorp’s biggest shareholders are betting on a rival offer for Australia’s largest agricultural company, pressuring Archer Daniels Midland to increase its $2.7 billion bid for the grains handler.

Fund managers spoken to by The Australian Financial Review said Archer Daniels’ $11.75 a share offer price was attractive but the target was in a unique position as the nation’s last publicly traded grains handler and an owner of strategic assets.

Shares in
GrainCorp
surged 43 per cent to a record $12.69 after GrainCorp revealed US agribusiness giant Archer Daniels had presented it with a non-binding, indicative takeover offer for stock it doesn’t already own.

Its shares closed at $12.30.

AFR
AFR

GrainCorp, forced into a trading halt on Friday after Archer Daniels raided its share register, has appointed Greenhill as a defence adviser alongside long term adviser Credit Suisse.

GrainCorp said the board was reviewing the proposal and had not formed a view on its merits. Analysts have valued the stock as high as $13.90 a share and have tipped a bidding war.

“While Archer Daniels’ 14.9 per cent economic interest in GrainCorp positions it well, we wouldn’t rule out another party bidding for the company given the scale and strategic nature of its assets and the fact that it is the last remaining significant grain company capable of being taken over in Australia," said RBS Morgans analyst Belinda Moore.

Archer Daniels increased its holding to 14.9 per cent after snaring a 10 per cent stake for $268 million, or $11.75 a share, on Friday. It wants to scoop up the rest for the same price, or a further $2.3 billion. The non-binding proposal is conditional upon gaining exclusivity, due diligence and approval by the Archer Daniels board.

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“I think the true value lies between $11.75 and $13 a share," said one fund manager. “That looks to be reasonable to me. $11.75 a share is a very good price but at the same time GrainCorp has very strategic assets and sometimes you have to look at the very long term, which is what these big offshore conglomerates tend to do."

One source said US giant Cargill had run the ruler over GrainCorp earlier this year, but GrainCorp’s recent purchase of Gardner Smith and Integro Foods would make it difficult for Cargill to execute a deal due to competition issues. Noble, Bunge, Wilmar, Glencore and Louis Dreyfus were viewed as potential bidders.

Archer Daniels’ offer is a 33 per cent premium to GrainCorp’s share price before its approach became public.

Ms Moore said an $11.75-a-share offer was not high enough. Both Ms Moore and Deutsche Bank said, based on recent industry multiples, GrainCorp was valued at $13.90 a share.

Another large shareholder said the $11.75 a share offer was a “pretty knock out premium".

In a statement over the weekend, Archer Daniels chairman and chief executive Patricia Woertz said the Illinois-based wheat and oilseed processor wanted to get board approval for a cash acquisition.

It is understood the GrainCorp board would not entertain offers less than $13 a share. Archer Daniels declined to comment.

With a market capitalisation of more than $19 billion, Archer Daniels is 10 times GrainCorp’s and has a stated ambition to grow in key agricultural supply regions outside of the US.

Its play for GrainCorp highlights a growing global trend to increase exposure to agriculture as companies seek to benefit from rising demand from Asia, driven by increasing living standards pushing up calorie intake and soft commodity prices.